MNI US OPEN - Slowing EZ Inflation Gives Ammo to Doves

NEWS

US (BBG): Debt-Limit Deal Wins House Passage, Easing US Default Concerns
The House passed debt-limit legislation forged by President Joe Biden and Speaker Kevin McCarthy that would impose restraints on government spending through the 2024 election and avert a destabilizing US default. Lawmakers from both parties joined to approve the bill 314-117 Wednesday evening, sending the measure to the Senate for consideration as a default deadline draws near. The vote cements Biden’s reputation for pragmatism and working across party lines as he seeks a second term and allows McCarthy to claim success in his first major test as speaker.

US (MNI): Fed Model Points To 'Very Strong' May Employment Gains
U.S. employment likely rose by 638,000 in May while wage growth continued to moderate, according to a real-time labor market index from the Federal Reserve Bank of St. Louis that "points to a still very strong labor market," economist Max Dvorkin told MNI. The Coincident Employment Index rose by 0.58 pp in May, translating into a not seasonally adjusted gain of 911,000 or 638,000 after seasonal adjustments. "The employment index shows an important increase in employment in May," Dvorkin said.

US/UKRAINE (NYT): U.S. Adds Aid to Ukraine to Deliver Ammunition for Drones and Artillery
The Biden administration on Wednesday announced $300 million in military aid for Ukraine, the latest package of weapons and other military equipment that the United States has been sending to Kyiv since the beginning of Russia’s invasion. The package includes additional ammunition for drones and long-range artillery. It also includes additional munitions for Patriot air defense systems as well as munitions for other air defense systems, including Stingers, Avengers and Aim-7 systems, the Pentagon said in a statement, as Kyiv gears up for its long-anticipated offensive to try to push Russian forces back and defend against aerial attacks from Moscow.

ECB (BBG): ECB’s Knot Says 2024 Rate-Cut Bets May Have to Be Adjusted
European Central Bank Governing Council member Klaas Knot said it’s “not unlikely” that investors will have to adjust their expectations for borrowing costs to be lowered in 2024. “Financial markets are already pricing in interest-rate cuts for next year,” Knot said Thursday in a speech in Brussels. “If they have to adjust this expectation, which is not unlikely, this could lead to new corrections.”

ECB (BBG): ECB’s Guindos: Quarter-Point Rate Hikes Are the ‘New Norm’
The European Central bank is in the “final stretch” of hiking interest rates, with further decisions to be data-driven, Vice President Luis de Guindos said.

UK (The Times): House prices fall at fastest annual pace since financial crisis, says Nationwide
Prices are now 3.4 per cent below where they were last May, according to the latest data from Nationwide. That is the slowest annual rate of house price inflation in the UK since July 2009. Year-on-year house price growth, which peaked above 14 per cent early last year when the market was still in its post-pandemic mini-boom, has been negative in each of the past four months. The average price of a house in the UK now stands at £260,736 after having fallen by another 0.1 per cent in May, although that was modestly better than what economists had feared.

CHINA (MNI): MNI INTERVIEW: Weak China PMI Demand Needs Fiscal Support
Chinese manufacturing risks further declines in the second half without continued fiscal and monetary support, after worse-than-expected PMI data revealed the highest proportion of companies expressing concerns over demand in the survey’s history, Chen Zhongtao, vice director at China Logistics Information Center (CLIC), told MNI. China’s economic recovery will face strong headwinds in the second half should demand contract further, said Chen, adding that the state of the world economy means exports cannot be relied upon to fill the gap.

JAPAN (MNI): Japan Q1 GDP To Be Revised Up On Stronger Capex
Capital investment is expected to be revised up slightly from initial estimates, which should drive up Japan's Q1 GDP, economists predicted following the publication of a government survey. The median forecast by six economists for revised Q1 GDP is 0.5% q/q, or an annualised 1.8%, compared with the preliminary estimate of 0.4% q/q, or an annualised +1.6%.

DATA

MNI BRIEF: Slowing Eurozone Inflation Gives Ammo To ECB Doves
Eurozone inflation slowed sharply in May, preliminary data from Eurostat showed, with the headline rate dipping to 6.1% from 7.0% in April. Core inflation slowed more than expected by analysts, offering encouragement for the doves on the ECB looking to slow the speed of policy tightening in coming months. Core inflation, the easiest way to gauge the underlying inflation the ECB's Governing Council is focused on, fell to 5.3% from 5.6% in April. Economists had been looking for a fall to 5.5%. Service sector inflation also slowed, dipping to 5.0% from 5.2% in April. Although the slowdown in prices was broad-based, energy inflation was a driver of the headline number, dipping to -1.7% y/y from 2.4% last month.

**MNI: EUROZONE FINAL MAY MANUF. PMI 44.8 (FLASH 44.6); APR 45.8
GERMANY FINAL MAY MANUF. PMI 43.2 (FLASH 42.9); APR 44.5
FRANCE FINAL MAY MANUF. PMI 45.7 (FLASH 46.1); APR 45.6
ITALY MAY MANUF. PMI 45.9 (FCST 45.8); APR 46.8
SPAIN MAY MANUF. PMI 48.4 (FCST 48.0); APR 49.0

***MNI: UK MAY MANUFACTURING PMI 47.1; PRELIM. 46.9

MNI: GERMANY APRIL RETAIL SALES 0.8% M/M, -8.6% Y/Y

FOREX: Dollar Rallies Capped as Jefferson Weighs on Hike Chances

• The greenback is broadly inline with yesterday's close, with the USD Index holding within range of yesterday's cycle high at 104.70. The bipartisan debt ceiling deal cleared the House late yesterday, leaving the Senate as the final step for Biden and McCarthy's deal.
• Having pulled lower on Fed's Jefferson talking up the possibility of a rate pause yesterday, rallies have been short-lived, potentially keeping a short-term lid on prices.
• Eurozone inflation for May came in below expectations for the flash estimate, but the drifting consensus after soft French and German prints yesterday has allowed EUR/USD to bounce off overnight lows and allow for EUR/GBP to trade higher for the first session in five.
• A firmer equity backdrop (e-mini S&P +0.2%, EuroStoxx50 futures +1.2%) has aided a pullback in the JPY - leaving USD/JPY just below the Y140 handle and levels that preceded the unscheduled tripartite meeting earlier this week. Markets remain on watch for any further comments from Kanda or the BoJ.
• Focus shifts to a deluge of US data - as markets look to gauge the condition of the jobs market ahead of NFP Friday. ADP Employment Change, weekly jobless claims and the May Manufacturing ISM are all due - with focus on the latter after Wednesday's poor MNI Chicago PMI release. Central bank speak includes ECB's Lagarde, Villeroy and Fed's Harker.

BONDS: Tsys Underperform Following Wednesday's "Skip" Higher

The US curve is bear flattening in European morning trade Thursday as some of Wednesday's rally is unwound. Treasuries are underperforming Bunds and Gilts whose respective curves are likewise leaning bear flatter.

• The Tsy cheapening this morning has continued the partial reversal from the dovish front-end repricing after Fed Gov Jefferson and Philly's Harker pointed yesterday to a potential "skip" of a June hike. Harker appears again today and is the only scheduled Fed speaker through the rest of the pre-Blackout period.
• Data so far has been relatively uneventful: we got modest mixed revisions of final European manufacturing PMIs, while the Eurozone prelim May CPI confirmed the national readings' slowing % Y/Y core and headline pressures. We saw an uptick in inflation expectations in the latest BoE DMP survey, but not a big Gilt mover.
• We get the accounts of the May ECB meeting and appearances by Lagarde and Villeroy.
• Major data includes US ISM Manufacturing, jobless claims and construction spending, with final Manufacturing PMI as well. Second-tier jobs data (ADP Private Payrolls, Challenger Job Cuts) will get attention ahead of Friday's nonfarms.

Latest levels:

• Sep US 10Y futures (TY) down 11/32 at 114-4 (L: 114-01 / H: 114-16)
• Jun Bund futures (RX) down 33 ticks at 135.72 (L: 135.6 / H: 136.17)
• Sep Gilt futures (G) down 22 ticks at 96.57 (L: 96.34 / H: 96.74)
• Jun OAT futures (OA) down 34 ticks at 130.2 (L: 130.1 / H: 130.65)

EQUITIES: E-mini S&P Trend Condition Remains Bullish

S&P E-minis trend conditions remain bullish and the latest pullback is, for now, considered corrective. Last week’s bounce from 4114.00, May 24 low, means that support around the 50-day EMA remains intact. The average intersects at 4134.83 and a clear break of it is required to signal a reversal. Eurostoxx 50 futures traded lower again Wednesday and in the process, cleared the 50-day EMA and support at 4252.00, the May 25 low. Price has also pierced support at 4233.00, the May 4 low and a key short-term level.

• Japan's NIKKEI closed higher by 260.13 pts or +0.84% at 31148.01 and the TOPIX ended 18.66 pts higher or +0.88% at 2149.29. In China the SHANGHAI closed higher by 0.071 pts or +0% at 3204.635 and the HANG SENG ended 17.36 pts lower or -0.1% at 18216.91.
• Germany's DAX trades higher by 175.24 pts or +1.12% at 15837.81, FTSE 100 higher by 50.01 pts or +0.67% at 7495.79, CAC 40 up 67.14 pts or +0.95% at 7165.84 and EuroStoxx50 up 47.7 pts or +1.13% at 4265.74.
• Dow Jones mini up 19 pts or +0.06% at 32997, S&P 500 mini up 10 pts or +0.24% at 4200.25, NASDAQ mini up 11.25 pts or +0.08% at 14311.

COMMODITIES: Crude Stabilises Ahead of Weekend's OPEC Meet

The bear cycle in Gold remains intact and short-term gains are - for now - considered corrective. The yellow metal has this week pierced $1942.4, trendline support drawn from Nov 3 2022. A clear breach of this trendline would reinforce bearish conditions. WTI futures remain in a bear mode position. The strong sell-off this week has resulted in a break of support at $69.39, the May 15 low. The clear breach strengthens bearish conditions and paves the way for weakness towards $63.90, the May 4 low.

• WTI Crude down $0.01 or -0.01% at $68.07
• Natural Gas up $0 or +0.18% at $2.271
• Gold spot down $7.18 or -0.37% at $1955.06
• Copper up $5.3 or +1.46% at $369.2
• Silver down $0.15 or -0.63% at $23.3242
• Platinum up $8.8 or +0.88% at $1006.32